Why the semiconductor industry will rise again

Some people are seeing low valuations for the acquisitions of startup companies and asking if it means doom and gloom. Peter Clarke sees it as part of an industry adapting to new economics.

Another way of looking at it is that riding Moore's Law now offers diminishing functional benefits and unit cost benefits but has demanded exponentially increasing NRE costs.

For most people it is time to step of the escalator. It should be no surprise that instead of spending $10 million or $50 million and being able to sell a company for $250 million we now have cost and deal values flipped around. Venture capital firms have spent $100 million to $500 million and more and in some cases can only realize $50 million in value. No wonder those VC firms started running away from rather than towards similar investment opportunities in recent years.

The good news is that the solution is clear and is being adopted around the world. Some call it More-than-Moore. The International Technology Roadmap for Semiconductors (ITRS) produced an excellent white paper in 2011 that pointed out that some applications based around health, transport and energy really benefit from More-than-Moore rather than from miniaturization. And while it is true that ITRS said other applications in security, communications and infotainment can take benefit from billions of transistors on a die it is clear that only one or two companies will be able to command the volumes to justify the cost.

Therefore for most startups the key is to be prepared to get off the crutch of Moore's Law and walk free. Give yourselves a cost advantage by NOT working at the leading-edge and don't routinely just try and push some generally available communications standard or other into digital silicon. It comes down to good old fashioned innovation born of being smart in design and radical in terms of the system-level functional improvement delivered.

That's what companies such as InvenSense Inc. (Sunnyvale, Calif.) – a recent IPO – have done with MEMS-based inertial measurement and navigation components and what Nintendo did with the Wii control baton. It is what PrimeSense Ltd. (Tel Aviv, Israel) did with the optical and infra-red vision system that is at the heart of the Microsoft Kinetic system. It is what scores of other startups are doing and it is one of the reasons I am not overly concerned about a lack of investment in semiconductors. It is also noticable that a number of MEMS acquisitions have commanded good exit prices. Murata Manufacturing Co. Ltd. has announced it has agreed to buy VTI
Technologies Oy (Vantaa, Finland) for about 20 billion yen (about 190
million euro or $260 million) in cash and SensorDynamics AG went to Maxim Integrated Products Inc. for about $130 million.

It is true we are not seeing the same amounts of venture capital invested overall as we did in the first half of the last decade, but good ideas continue to get backing. And this is because silicon, semiconductors and electronics in their broadest manifestations are still a great way to create wealth and improve the well-being of the world.

The industry and the systems our ICs go in need both -- the advanced process geometries for the Big D-Little A SoCs, and the larger geometry boutique processes for the Big A-Little D analog, power and MEMS functions.
Miniaturization is still critically important, but there are other ways to achieve it besides making one big die in the latest process -- SIP and TSV for example.
There are still plenty of opportunities for fabless startups, but the name of the game is IP, whether digital, analog or electro-mechanical. This has been true for a very long time, ever since the rise of the fabless business model.
Startups are by definition fabless and also don't have deep pockets. Show me a startup with valuable new IP and patents to protect it, and I'll show you a potential ROI. But show me a startup whose business plan is based on taping out the next great 28 nm SoC and I'll show you a bunch of dreamers who will never get funding.

Peter--what you are saying is that success comes from going with analog and MEMS--"we" analog folks knew this all along! Many analog companies have done very well by NOT looking to the next process node for success, but by using older processes to the max--fab is easier to get, less expensive, and plenty of good, used equipment for fab and test is available cheap!